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States Expect More Damaging Cuts Without More Federal Aid

State policymakers will soon begin addressing shortfalls that have already arisen in their current budgets even as they prepare next year’s budgets, and many states are bracing to make deeper, more damaging cuts than they’ve already imposed if they don’t receive additional federal fiscal aid.

State and local tax revenues have plummeted as people have less income, shop less, and reduce their economic activity in other ways due to the coronavirus and the worst economic downturn since the Great Depression. For example, state sales tax collections in the second quarter of 2020 (April through June) dropped over 14 percent compared to the same quarter a year ago; in a typical year, they’d grow 3 to 5 percent.

Six states (Massachusetts, New Jersey, Pennsylvania, Rhode Island, South Carolina, and Vermont) have delayed adopting a full budget for fiscal year 2021 (which started on July 1 in most states), and the fiscal year hasn’t started in Alabama, Michigan, and the District of Columbia. But many states that have adopted their budgets assumed much higher revenues than they now expect and didn’t fully account for recent cost increases due to the pandemic. These and other states will undoubtedly revisit their budgets as COVID-19’s budgetary toll and the likelihood of more federal aid become clearer. For example:

  • California’s just-adopted budget includes $11 billion in spending cuts and payment delays that will take effect unless the state receives substantial new federal fiscal aid.
  • Colorado, which closed a $3 billion shortfall in its current budget through spending cuts and other measures, faces more cuts next year. “For those of you who haven’t heard the news flash, next year is going to be worse,” said Rep. Daneya Esgar, chair of the Joint Budget Committee (JBC). “We just did a lot of one-time budget tricks that we did just because we had to — and those will not be at our disposal next year,” said Senator Rachel Zenzinger, a JBC member.
  • Connecticut Governor Ned Lamont called on agencies to identify at least 10 percent in cuts in the next biennial budget.
  • Florida Governor Ron DeSantis recently asked agencies to identify at least 8.5 percent in further cuts in the current budget, beyond the $1 billion DeSantis already cut by veto.
  • Hawai’i Governor David Ige said, “I’m just concerned that [federal policymakers] are not going to provide additional funds,” warning that the state will have to impose pay cuts or furloughs for public workers unless it gets more federal help or more flexibility to use CARES Act funding to close its budget hole. U.S. Senator Brian Schatz noted, “As we try to get through this, both in terms of public health and the economy, there’s just no way we can handle the pandemic if state and county governments are forced to do layoffs in the fall.”
  • Michigan’s budget director, Chris Kolb, noted that projected revenues over this fiscal year and next have fallen by $4.2 billion since the coronavirus hit. “These are large revenue losses that will require difficult decisions without additional federal aid, especially in fiscal year 2022,” he said. “Tough decisions will still be required in the next five weeks.”
  • Texas Governor Greg Abbott called on agencies to propose a 5 percent cut from their current two-year budget, which produced harmful proposals such as a $133 million cut in health services related to women’s health, family violence prevention, and services for individuals with traumatic brain injuries.
  • Wyoming Governor Mark Gordon called on agencies to propose cuts of up to 30 percent from their current budget to offset crashing revenues due to the recession and falling revenue from natural resource extraction. “The cuts we’ve talked about here are getting close to the bone,” he said. “In some cases we really are talking about the bone. We will talk about some very precious programs and some very valuable people. I don’t look forward to any of this.”

Some states have already made deep cuts to offset huge revenue shortfalls triggered by COVID-19 and the recession. The initial cuts of spring and early summer caused sizable harm through layoffs, furloughs, and cuts to vital public services. States and localities already have laid off or furloughed over a million workers, far more than in the Great Recession of a decade ago and its aftermath. Without a new round of flexible federal aid, the cuts will only grow, harming families, communities, and businesses and delaying the economic recovery.

States will try to shield K-12 public schools and health services, but it’s nearly impossible to protect them entirely over time, since education and health make up more than half of state spending nationwide. Indeed, several states have already slashed crucial health programs, such as substance use treatment and prevention.

As the President and Congress negotiate a new relief package, the House-approved Heroes Act offers a sound starting point. It includes close to $900 billon in grants to states, localities, territories, and tribal governments and would boost the share of Medicaid costs that the federal government pays. More fiscal aid is essential for communities nationwide, especially those hit hardest by the unprecedented events of recent months.